The saga involving Spain’s public funding of certain Spanish football clubs took a new turn on 26 February 2019, as the General Court of the European Union overturned the European Commission’s (“EC”) ruling that FC Barcelona had received unlawful state aid from Spain.

On 4 July 2016, the EC found (through three different investigations) that seven Spanish football clubs had received unlawful state aid from Spain.  The first one involved a land transfer from Real Madrid to the City of Madrid which was overvalued by €18.4 million and gave Real Madrid an unjustified advantage over other clubs, according to the EC.  The second investigation found that the State-owned Valencia Institute of Finance had granted loans to three Valencia football clubs on extremely favourable terms through the provision of guarantees, giving them an economic advantage over other clubs.  The last investigation concerned four football clubs, including FC Barcelona and Athletic Bilbao, who had been treated as non-profit organisations for over twenty years, therefore benefitting from a 5% lower tax rate on profit than limited liability companies without an objective justification.  The clubs benefited from this rate because they fell within the exception to the law that required professional football clubs to become public limited companies in 1990, and were instead given the status of non-profit organisations because they had achieved a positive result for the tax years preceding the adoption of the law.

Under European law, State aid is when State intervention affords a selected recipient an advantage which distorts or potentially distorts competition and affects trade between Member States. It is prohibited under Article 107(1) of the Treaty on the Functioning of the European Union unless certain policy objectives are being pursued. EU State aid rules therefore ensure that public funding does not distort competition by selectively favouring one market participant over another.  These rules apply to professional sport and more specifically in this case, to football clubs, which conduct economic activities such as marketing, transfer of players and merchandising.

The EC concluded in all three investigations that public funding constituted unlawful State aid and ordered Spain to recover €30.2 million from the seven football clubs concerned.  European Commissioner for Competition Margrethe Vestager stated that: “Using tax payers’ money to finance professional football clubs can create unfair competition. Professional football is a commercial activity with significant money involved and public money must comply with fair competition rules”.

Since this decision, most of the football clubs have appealed the EC’s decision as well as sought interim measures.  Whilst several judgments are pending, FC Barcelona is the first football club to successfully appeal the decision. The General Court held that the EC had to establish that the tax scheme for non-profit entities, taken as a whole, was such so as to place its beneficiaries in a more favourable position.  It found that the EC had only looked at data during the investigative procedure (four years).  However, it did not use information provided by one of the clubs showing that the non-profit status actually was unfavourable in terms of tax during the period of July 2000 to June 2013 because of player transfers.  As a result, the General Court held that the EC had erred in its assessment of facts by not taking into account all information available, which should have led it to doubt whether the tax regime had actually put the four football clubs at an advantage vis-à-vis its competitors.

Also on 26 February 2019, Athletic Bilbao’s appeal against the same decision of the EC was dismissed as unfounded in its entirety.  The General Court concluded that, despite the club’s arguments, the EC had (i) set out to the requisite legal standard its reasons relating to the need to assess the benefits as a whole deriving from the aid scheme, and (ii) made no error in concluding that the aid scheme was liable to affect trade between member states and distort competition.

It should be highlighted that this is not a new area of concern for professional sport. In 2003 the EC launched an investigation into tax advantages afforded by Italy to football clubs under its “Save Football” Campaign but it was found that these provisions did not constitute State aid. Further, in 2016, it was found that the Netherlands had provided football clubs with State aid but the provisions were deemed compatible with the internal market.

Whilst this win reiterates that the EC’s burden of proof that a particular State measure provides a benefit on its beneficiaries is a high threshold, Athletic Bilbao’s defeat equally shows that the findings of unlawful State aid may still be upheld in other aspects.  Watch this space as further results from the EC decision’s appeals unfold…